Osisko reports 133% cash flow increase in Q2, sees record revenues, gold ounces earned

JOHANNESBURG (miningweekly.com) – Precious metals royalty company Osisko Gold Royalties has seen a 133% year-on-year increase in cash flows from operating activities, reporting $15-million in cash flow achieved in the three months to June 30, on the back of record revenues and gold ounces earned.

The TSX- and NYSE-listed company reported revenues of $15.8-million in the period under review, a 54% increase compared with the second quarter in 2015; it also earned 9 488 gold ounces, a 38% increase year-on-year.

Osisko attributed this revenue increase, which extends to the first half of the year, to higher in-kind royalties earned and sold. Gold royalties earned from the Canadian Malartic mine, acquired in 2014 by Yamana Gold and Agnico Eagle, increased by 492 oz, or 4%, as sales increased by 514 oz.

The company also earned and sold 3 655 oz of gold from Goldcorp’s Québec-based Éléonore mine, compared with nil earned and sold in the first six months of 2015. In addition, Osisko received and sold 651 oz of gold from its Island Gold mine’s net smelter return (NSR) royalty and 221 oz of gold from its Vezza NSR royalty.

The average selling price of gold per ounce in Canadian dollars was also higher in the first half of 2016 at $1 633, compared with $1 483 in the first half of 2015.

Meanwhile, Osisko’s net earnings for the second quarter amounted to $15.7-million, or $0.15 per basic share, while cash and cash equivalents as at June 30 were $424.5-million.

Further, the company saw a significant increase in the closing share price in the first half of 2016, from $13.67 to $16.89, compared with a decrease in the first half of 2015, from $16.36 to $15.72. This generated a higher share-based compensation expense on the deferred share units and the restricted share units.

The company’s half-year operating income amounted to $11.9-million, compared with $7.1-million achieved in the corresponding period of 2015. This could be attributed to higher revenues generated from the sale of gold and silver, lower business development expenses and higher cost recoveries from associates, partially offset by the depletion of royalty interests and higher general and administrative expenses.

The increase in general and administrative expenses is mainly due to a higher share-based compensation expense. The lower business development expenses are due to the $2.2-million in fees incurred in 2015 for the acquisition of Virginia, partially offset by a higher share-based compensation expense. Total share-based compensation for the first half of 2016 amounted to $4.8-million compared to $2.4-million in the corresponding period of 2015.

"During the past two years, we have successfully established Osisko Gold Royalties as the fourth-largest precious metals royalty company with flagship royalties on two of Canada's largest and most modern gold operations,” said Osisko chairperson and CEO Sean Roosen, commenting on the results.

He added that, through the implementation of the company’s incubator model, Osisko had been able to establish future growth opportunities with emerging precious metals mining companies.

The company in April entered into a 1% NSR royalty agreement with Arizona Mining on the Hermosa silver project, in Tucson, Arizona, for a cash consideration of $10-million.

It also entered into a $10-million financing agreement with Falco Resources in May for a future stream financing or a 1% NSR royalty on the Horne 5 project, located in Rouyn-Noranda, Québec and, most recently, Osisko began trading on the New York Stock Exchange on July 6.

“We are also very encouraged by the results of the exploration programmes on properties in which Osisko Gold Royalties has royalty interests. We will continue to pursue value-enhancing opportunities to support our growing dividend distribution policy," said Roosen.

The company expects to continue its exploration programmes in the James Bay area for about $10.3-million in 2016 ($8.3-million net of estimated exploration tax credits), of which about $3.8-million will be financed by Québec institutions and other partners.

As at June 30, the company had spent $3.2-million on exploration and evaluation activities.

OUTLOOK
Osisko noted that its 2016 outlook on royalties was based on publicly available forecasts, in particular forecasts for the Canadian Malartic mine, published by Yamana and Agnico Eagle, forecasts for the Éléonore mine, published by Goldcorp, and forecasts for the Island Gold mine, from Richmont Mines.

The company advised that attributable royalty production for 2016 was still estimated at 28 000 oz to 29 000 oz of gold for the Canadian Malartic mine, between 5 500 oz and 6 200 oz of gold for the Éléonore mine, and between 1 000 oz and 2 000 oz from other royalties.

QUARTERLY DIVIDEND
On the back of its second-quarter results, Osisko declared a third-quarter dividend of C$0.04 a share.

"We are pleased to announce our eighth consecutive quarterly dividend, which demonstrates the strength of our high-quality income-producing royalties,” said Roosen, adding that, with this dividend, Osisko will have returned approximately C$26.6-million to its shareholders.

“We will seek to responsibly increase this dividend as we continue to expand our cash flows from our portfolio of royalties and investments," he said.